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JOINT CIRCULAR No

JOINT CIRCULAR No.90/1997/TTLT/TC-NN OF DECEMBER 19, 1997 GUIDING THE REGIME OF FINANCIAL MANAGEMENT AT THE STATE ENTERPRISES ENGAGED IN PUBLIC UTILITY ACTIVITIES IN THE EXPLOITATION AND PROTECTION OF WATER CONSERVANCY PROJECTS

Pursuant to the Law on State Enterprises adopted by the National Assembly on April 20, 1995; the Ordinance on the Exploitation and Protection of Water Conservancy Projects of August 31, 1994, Decree No.56-CP of October 2, 1996 of the Government on the State Enterprises Engaged in Public Utility Activities, the Ministry of Finance has issued Circular No.06-TC/TCDN of February 24, 1997 to guide the financial management regime at State enterprises engaged in public utility activities according to the provisions of Decree No.56-CP of October 2, 1996 of the Government.

In view of the characteristic nature of the activities and the mechanism of financial management at the enterprises engaged in the exploitation and protection of water conservancy works, aside from implementing the provisions in Circular No.06-TC/TCDN of February 24, 1997 of the Ministry of Finance, the Ministry of Finance and the Ministry of Agriculture and Rural Development now jointly issue the following guidance on some concrete questions regarding the regime of financial management at the State enterprises engaged in public utility activities in the exploitation and protection of water conservancy projects:

I. GENERAL PROVISIONS

1. Subject to the regulation of this Circular are the State enterprises engaged in public utility activities in the exploitation and protection of water conservancy projects (commonly called agro-hydraulic enterprises) comprising the independent accounting enterprises founded by decision of the Minister of Agriculture and Rural Development or the Presidents of the People's Committees of the provinces and cities directly under the Central Government according to the criteria provided for in Articles 1 and 2 of Decree No.56-CP of October 2, 1996 of the Government.

2. The agro-hydraulic enterprises conducting irrigation and drainage services according to the assigned tasks or on orders are entitled to collect water conservancy fees and a number of other charges provided for by the State. The agro-hydraulic enterprises which are assigned capital, natural resources, land and other resources, shall have to use effectively, preserve and develop the assigned capital, have civil rights and obligations, take on themselves the responsibility for their activities as assigned by the State within the limit of the capital and resources managed by the enterprises through the mode of using revenues to cover expenditures and receiving financial support from the State in the cases stipulated in Article 11 of the Ordinance on the Exploitation and Protection of Water Conservancy Projects.

3. In addition to implementing the irrigation and drainage task, an agro-hydraulic enterprise is allowed to make the most of the land, landscape, State capital and property managed by the enterprise to organize business in supplementary occupations and trades suitable to the capabilities of the enterprise and the demands of the market on the following conditions:

- It must get the written consent of the agency which decides to found the enterprise;

- It shall not interfere with the execution of the irrigation and drainage tasks assigned or ordered by the State.

- It must register the supplementary businesses as currently prescribed.

- It must make separate accounting of the supplementary businesses.

- It must fulfil the obligation of paying taxes on the supplementary businesses as prescribed by law.

4. An agro-hydraulic enterprise is entitled to the following financial policies:

- It is given preference in capital investment, supplied with part or the whole of the regulatory capital, given preferential loans or support from the official aid to the projects and programs in the exploitation of the water conservancy works.

- It is exempted from capital depreciation deduction for the projects built up or cast or made of earth, pumping stations with capacity of 8,000 m3/hour upward as currently stipulated, together with the property and architectural objects associated with the use and operation of these pumps and a number of other properties as defined in Decision No. 1062/TC/QD/CSTC of November 14, 1996 of the Ministry of Finance.

- It is exempted from land use tax on the area assigned by the State for the construction and protection of water conservancy projects (including the house for the management of the stations and the group of main projects, workshops, and storehouses in service of the exploitation and protection of water conservancy projects). In case the agro-hydraulic enterprise uses this land for service businesses, it has to pay the land rent as provided for in Decree No.85-CP of December 17, 1996 of the Government.

- It is exempted from income tax on the income made up of the water conservancy fees collected from the activities in direct service of agricultural production.

- It does not have to pay tax on the use of State budgetary capital.

5. The agro-hydraulic enterprise is subject to the financial control and supervision by the financial agency in its capacity as representative of the owner of State capital and property at the enterprise with delegation from the Government.

II. MANAGEMENT AND USE OF CAPITAL AND PROPERTY

1. Capital investment:

1.1. A newly founded agro-hydraulic enterprise shall be given priority in investment of part or the whole of the initial regulatory capital, not lower than the prescribed capital provided for in Decree No. 50-CP of August 28, 1996 of the Government, consistent with the size and assigned task of irrigation and drainage. The enterprise has the duty to continually preserve and develop the capital from the results of its business activities. An agro-hydraulic enterprise shall receive State investments in projects, property, machinery and equipment of the categories not subject to depreciation cost accounting in the process of construction, purchase, renovation or upgrading when these properties are no longer usable. It is also entitled to supplementary capital allocation if the State deems it necessary to make additional investment in order to carry out the supplementary task assigned by the State or if it really falls short of capital compared to the assigned task of irrigation and drainage (after full mobilization of the existing sources of capital at the enterprise). The supplementary capital sources for an operating enterprise comprise:

- A profitable enterprise shall be considered for profit tax relief in order to supplement the capital of the enterprise as prescribed by law.

- An enterprise which does not make profit in business or which still runs short of capital after enjoying profit tax relief shall be considered for supplementary allocation of capital by the State.

1.2. The agency which decides to found the agro-hydraulic enterprise and the financial agency of the same level have the responsibility to assure the regulatory capital at the time of the founding of the enterprise as stipulated in Article 2 of Decree No.50-CP of August 28, 1996 of the Government and to allocate supplementary capital to the enterprise.

1.3. Procedures for capital investment:

a/ For investment in construction: The agro-hydraulic enterprise shall be allocated investment by the State to upgrade or build new constructions, expand the scope of its activities, conduct major repairs of its constructions, machinery and equipment and restore its projects. It shall not have to deduct its depreciation cost with the sources of investment capital for basic construction as provided for in the current Regulation on the Management of Construction Investment.

b/ In case of supplementary investment for business capital, the enterprise must file a dossier proposing allocation of supplementary capital including:

- The decision to found the enterprise;

- The certificate of business registration;

- The decision of the head of the agency which decides the founding on the assignment of the public utility task;

- The production and financial plan of the enterprise already ratified by the competent authority;

- The public financial report of the enterprise in the previous year (if the enterprise is still operating).

1.4. The process of allocating capital to the enterprise shall comply with the decision of the Ministry of Finance.

2. Assigning, selling, leasing, mortgaging and pawning property:

- An agro-hydraulic enterprise may assign or sell unnecessary or technically obsolete properties in order to recover capital after the agency deciding to found the enterprise decides to that effect. Before assigning or selling the enterprise must set up a Price Setting Council and conduct a public bidding as prescribed by law. The Council must be composed at least of the representatives of the Board of Directors, a technically knowledgeable person, the chief accountant and the person directly managing the property of the enterprise... The difference between the selling or assignment of the property and the remaining value on the book of accounts as well as the fee of sale or assignment shall be accounted into the business result of the enterprise.

For the properties not subject to deduction of depreciation cost the assignment or sale shall be accounted as reduction of the business capital of the enterprise, and the income from the sale or assignment (after deduction of the cost of assignment or sale) shall be wholly remitted to the State budget (or accounted as increase of business capital if the State reinvests in the enterprise).

- For the important fixed assets and the main production lines, before the assignment or sale, the enterprise must get the written consent of the agency which decides to found the enterprise after receiving the written agreement of the agency managing State capital and properties at the enterprise.

- For the properties which are unnecessary or which are leased out because of their inefficient use, the enterprise shall report its plan for their use to the agency which decides to found the enterprise for decision. For the properties which are leased out with a view to raising the efficiency of their use and increasing the income of the enterprise they still have to make deduction of the depreciation cost as prescribed and the enterprise shall have to monitor and retrieve the properties on expiry of their lease term.

- The enterprise is entitled to pawn and mortgage properties in order to borrow capital from the credit organizations according to provisions of law. The enterprise is not allowed to pawn or mortgage properties which it borrows or hires or is asked to keep nor accept pawns and mortgages from individuals or another enterprise without the consent of the owners of these properties.

3. Liquidation of properties:

An agro-hydraulic enterprise is allowed to liquidate properties which are not necessary or are obsolete technically and cannot be used, are out of order or substandard.

Important equipment and properties, the main production lines of a decisive character for the operation of the enterprise such as the mechanical pumps or canals... must get the written consent of the agency which decides to found the enterprise and the agency managing the State capital and properties at the enterprise before their liquidation.

Before the liquidation, a Property Liquidation Council must be set up, composed of at least the representative of the enterprise leadership, a technician, the chief accountant and the manager of properties... In case the spare parts, discarded materials and other properties resulting from the liquidation are used for production and business purposes, the enterprise shall have to organize the evaluation and organize bidding as required by law if these properties are put on sale. The difference between the income resulting from the liquidation (including the value of the part used for investment in business) and the value remaining on the book of accounts of the liquidated properties as well as the liquidation fees shall be accounted in the business results of the enterprise. In particular, for those properties not subject to deduction of the deprecation cost, they shall be accounted as reduction of business capital of the enterprise. The income from the liquidation, after deduction of the liquidation expenditures, shall have to be remitted wholly to the State budget (or accounted as increase of the business capital if the State reinvests it in the enterprise).

4. The agro-hydraulic enterprises shall carry out the regime of deduction and use of the fixed asset depreciation cost as provided for by the Ministry of Finance. The following assets shall not be subject to deduction of depreciation cost:

- The cast-built or earth works.

- Mechanical pumps with capacity of 8,000 m3/h upward as currently provided for together with architectural objects used in the operation of the works.

- Fixed assets coming from the welfare fund of the enterprise and not directly serving the production and business activities of the enterprise.

- Fixed assets hired for operation.

- Fixed assets still in use though having exhausted their depreciation time.

- Fixed assets which are not necessary, wait removal or have been kept for more than a year and have been registered with the financial agency.

The whole depreciation cost of the fixed assets shall be left at the enterprise for reinvestment in renovation and replacement of fixed assets and for use to meet the business requirements as provided for by the Ministry of Finance.

With regard to the properties not subject to depreciation dedication, the enterprise still have to open the book of accounts to monitor and record the depreciated value as prescribed.

5. The agro-hydraulic enterprise shall reevaluate its properties in the following cases:

- Inventorizing and reevaluating properties as decided by the State.

- Using its properties to contribute to the capital of joint ventures, to the stock companies as required by law.

The handling of the results of the inventory and revaluation of properties must comply with the regulations of the State.

III. TURNOVER, EXPENDITURES AND DISTRIBUTION OF PROFITS

1. The turnover of an agro-hydraulic enterprise comprises the revenue from the irrigation and drainage service (under the policy of collection of water conservancy fees); revenue from business activities in the integrated exploitation of the water conservancy projects; revenue from the aid allowances of the State as prescribed; and other revenues...

1.1. Revenue from irrigation and drainage service is the money collected as water conservancy fee and tested on completion according to the contract. The level of this fee shall be set by the People's Committees of the provinces and cities directly under the Central Government.

For the inter-provincial agro-hydraulic enterprises, the income is the remittances from the agro-hydraulic enterprises in the system determined by the System Management Council.

1.2. The income from the business operations in the integrated exploitation of the water conservancy works such as: aquaculture and fisheries, leasing of water locks, tourist services, electricity and water supply for industrial production, supply of living water for the industrial zones and other business activities.

1.3. Income from allowances of the State as prescribed.

1.4. Other incomes such as recovery of bad debts, incomes from liquidation and sale or assignment of properties, from joint ventures and cooperation, financial leases and other incomes...

2. The expenditures of an agro-hydraulic enterprise comprise:

2.1. Expenditures on irrigation and drainage:

1. Wages and wage subsidies.

2. Remittances based on wages such as social insurance, health insurance, trade union fee of the laborers directly paid by the enterprise.

3. Basic depreciation of the fixed assets of the properties subject to depreciation deduction.

4. Materials and fuel for operating and maintaining constructions, machinery and equipment used in irrigation and drainage service.

5. Major repairs of fixed assets.

6. Regular repair of fixed assets.

7. Electricity cost of pumping at irrigation and drainage stations.

8. Pay to the water supply sources (if any).

9. Managerial cost of the enterprise (including the charges on computerized telephone to regulate the water level in service of production).

10. Expenditures in service of the prevention and fight against storms, floods and droughts.

11. Contributions to the fund for prevention and fight against storms and floods.

12. Expenditures on training, scientific research, application of new technologies and elaboration of economic and technical criteria and norms .

13. Expenditures on labor protection and safety and protection of the water conservancy works...

14. Expenditures on the collection of water conservancy fee.

15. Other expenditures...

2.2. The expenditures on the business activities in the integrated exploitation are the expenditures in the raising of aquaproducts, fisheries, guard and other businesses...

2.3. The expenditures on other activities include expenditures on the recovery of bad debts which have been written off, expenditures on the collection of fines, expenditures on the assignment, sale and liquidation of fixed assets.

In addition to the above expenditures, the enterprise is entitled to put into its expenditure accounts the severance allowances for laborers as stipulated in Decree No. 198-CP of December 31, 1994 of the Government guiding a number of provisions in the Labor Code.

All expenditures must be provided with the necessary legal vouchers as currently prescribed.

3. The agro-hydraulic enterprises are entitled to use their incomes to make up for their expenditures including:

- Income from service activities in irrigation and drainage used to make up for the expenditures in this area, tax and other payments to the State as prescribed by law (except profit tax).

- Income from business activities in the integrated exploitation used to make up for the expenditures in the business activities for integrated exploitation, taxes and other payments to the State as prescribed by law (except profit tax).

- Income from other activities used to make up for the expenditures on other activities, taxes and other payments to the State as prescribed by law (except for profit tax).

An agro-hydraulic enterprise conducting supplementary business activities must ensure that these activities are profitable and it must not use the profit in public utility activities to make up for the losses in other businesses.

3. Distribution of profits:

1. The profits achieved by an agro-hydraulic enterprise in the year (including profit from businesses and other activities) shall be distributed in the following order:

a/ Paying profit tax as prescribed by law.

b/ Deducting the fines for violations of the contract, for overdue debts, and other reasonable expenditures not yet deducted when determining the taxable profits.

c/ Deducting losses not yet deducted when determining the taxable profits.

d/ After making deductions as in Items a, b, and c, the enterprise may establish its funds according to the following proportions and ceilings:

+ Development investment fund: minimum 50%.

+ Financial reserve fund: 10%, but the balance of this fund must not exceed 25% of the statutory capital.

+ Deductions from the reward and welfare funds representing real wages for three months if it fulfils the plan of remittance to the budget ratified by the competent authority. In other cases, the enterprise is entitled to make deductions from these two funds representing the real wages of two months.

After making deduction defined in Items a, b and c, of the development investment fund and the financial reserve fund, if the profit fund is not exhausted, the difference shall be transferred wholly to the development investment fund. If the remainder is not enough to set up the reward and welfare funds equivalent to the real wages of two months, the State shall make up for the shortfall.

2. For the agro-hydraulic enterprises with income not enough to make up for the reasonable expenditures, after spending 50% of the profits from business and other activities (if any) to cover the expenditures, the shortfall shall be made up for by the State as follows:

- To provide enough to make up for the remaining losses.

- To allocate support equivalent to the real wages at the enterprises in two months for the reward and welfare funds.

- The remainder of the income from the activities in the integrated exploitation and other activities (if any) shall be put into the development investment fund (80%) and the financial reserve fund (20%).

* The sources of allocation of the financial subsidies shall derive from the following:

- The agro-hydraulic enterprises whose founding is decided by the President of the People's Committees of the provinces and cities shall be subsidized by the local budget.

- For the agro-hydraulic enterprises whose founding is decided by the Ministry of Agriculture and Rural Development, the Ministry of Agriculture and Rural Development shall take the initiative and discuss with the Ministry of Finance to suggest the level of subsidy from the Central Budget.

In case of unexpected natural calamities such as storms and floods, if the enterprise is still unable to make up for the losses even after having mobilized all the existing lawful sources of capital and received subsidies from the sources of capital in the plans of the various budget levels, the enterprise shall be allowed a specific solution decided by the Government.

The issue, management and use of the financial subsidy shall be effected according to Circular No.68-TC/TCDN of September 25, 1997 of the Ministry of Finance guiding a number of financial subsidies for the State enterprises and other decisions of the Ministry of Finance.

3. The procedures and time for founding and the objective of use of the fund of the enterprises shall follow the same pattern as for an enterprise engaged in business activities.

Within the limit of the total that can be contributed to the reward and welfare funds, the Director of the enterprise is entitled to decide the rate of this contribution to each fund after consulting the trade union of the enterprise.

An agro-hydraulic enterprise shall not set up the reserve fund for job severance. In particular cases where it is necessary to scale down the activities in irrigation and drainage, the agency that decides to found the enterprise and the financial agency of the same level shall consider giving allowances to the laborers who have lost their jobs according to the prescribed regime.

4. With regard to the agro-hydraulic enterprises in deep lying, remote and border areas or on islands or a strategic area with exceptionally difficult conditions, the State shall consider and give subsidies for the following expenditures:

- Expenditures on kindergartens and other educational facilities in the places where the schools and classes of the official educational system are still non- existent.

- Expenditures on health care in the places where hospitals or medical stations are still maintained due to special conditions.

IV- FINANCIAL PLAN

1. Each year, basing itself on the prescriptions and guidance of the agency which decides to found the enterprise and the financial agency, the agro-hydraulic enterprise shall draw up the plan of production and service in irrigation and drainage, the financial revenue and expenditure plan (including the plan of subsidies) and submit it to the agency which decides to found the enterprise and the financial agency of the same level. The agency which decides to found the enterprise shall have to ratify the plan and submit a general report to the financial agency and the related agencies.

2. Within the limit of the ratified annual financial revenue and expenditure plan, the Head of the agency which decides to found the enterprise shall assign the plan for irrigation and drainage and the financial plan to the agro-hydraulic enterprise and send the plan to the financial agency of the same level for coordination. The State Budget shall provide subsidies only within the limit of the budgetary plan already ratified.

In case of over-fulfillment of the ratified project, the enterprise shall receive the treatment provided for in the Budget Law and the provisions in force.

V- INSPECTION OF ACCOUNTANCY, FINANCIAL REPORT AND FINANCIAL TRANSPARENCY

1. Drawing up the financial report:

- Each quarter and each year, the agro-hydraulic enterprise shall have to make a financial report as currently prescribed. The Director of the enterprise is answerable to the State and law for the accuracy and truthfulness of the financial report.

- The quarterly and annual financial report shall be sent to the agency which decides to found the enterprise, the tax agency, the agency managing the State capital and properties at the enterprise, and the statistical agency.

2. Accountancy check, financial report:

- Each quarter and each year, the agro-hydraulic enterprise shall have to check its own accountancy and financial report.

- The agency which decides to found the enterprise shall assume the main responsibility and together with the agency of the same level managing the State capital and properties at the enterprise organize the checking and ratification of the annual financial report of the enterprise.

- The financial agency shall inspect the observance of the financial and accounting regimes, the discipline in budget collection and remittance and the accurancy and truthfulness of the financial report.

- The violations of the accountancy regime, the financial collection and remittance regime, the budget collection and remittance regime, the regime of establishment and use of the funds of the enterprise shall be subject to administrative sanctions and economic sanctions according to the prescriptions of law.

3. Public annual financial reporting:

- Basing itself on the annual financial report ratified by the competent agency, the enterprise shall publicly announce a number of financial criteria as prescribed by the Ministry of Finance.

- The contents of the criteria to be publicly announced shall conform with the forms attached to this Circular.

VI- IMPLEMENTATION PROVISIONS

1. Apart from specific provisions for the agro-hydraulic enterprises laid down in this Circular, the agro-hydraulic enterprises shall have to carry out other provisions of law regarding State enterprises.

2. This Circular takes effect from the date of its promulgation. All earlier provisions on financial management at the agro-hydraulic enterprises which are contrary to this Circular are now annulled.

3. In the process of implementation should any question arise the enterprises would report to the Ministry of Agriculture and Rural Development and the Ministry of Finance for study, modification and amendment in order to make the Circular more appropriate.

For the Minister of Agriculture and Rural Development

Vice Minister

VU TRONG HONG

For the Minister of Finance

Vice Minister

PHAM VAN TRONG